Is China’s Tsinghua Unigroup’s $23 Billion Bid for Micron a Trial Balloon?
Last week, reports surfaced that China’s Tsinghua Unigroup had put on the table a $23 billion offer to buy Boise, Idaho-based Micron Technology, one of the top five semiconductor manufacturers in the world and third in the global DRAM market.
Tsinghua has offered $21 a share for Micron, or more than a 20 percent premium over the chip manufacturer’s $17.61 closing stock price a week ago but less than a 4 percent uptick as of Monday’s $20.04 opening. A year ago Micron’s shares traded at north of $33.
Micron, perhaps splitting hairs on the formality of an offer, so far has said it’s not received a buyout sheet. But no one’s denying that discussions have taken place.
Still, there’s a big question out there: Is Tsinghua’s rumored Micron offer merely a trial balloon to take the temperature both of the semiconductor maker’s receptivity and of U.S. regulators? A mere shot over the bow, perhaps?
The possible transaction would, of course, receive myopic scrutiny from U.S. regulators, perhaps including, as the Wall Street Journal pointed out, an examination by the Committee on Foreign Investments in the United States (CFIUS), which determines whether any foreign acquisitions or investments pose a security threat.
“They have decided that they really have to buy somebody because they can’t deliver the intellectual property themselves,” Handel Jones, International Business Strategies president, told the Journal.
“I think there is a reasonable probability there will be an issue with government approval given a deal of this size,” he said.
Say the alleged offer is merely a trial balloon that goes nowhere other than to alert Chinese authorities to the difficult prospect of building domestic sources of semiconductors let alone the technology to build memory chips.
In that sense, as has been pointed out in a number of reports, the specifics of Tsinghua’s offer are less noteworthy than the questions it raises about foreign buyouts of U.S. companies, particularly one as home-grown and prominent as Micron, and of China’s competitive prospects in the segment.
While a deal for Micron, which ranks third behind Samsung and SK Hynix worldwide in DRAM revenue according to researcher IHS, would give Tsinghua an immediate leg up in the nascent DRAM and NAND markets in its native China, the chances that U.S. regulators will approve a government-sponsored Chinese firm to make the deal seem dim at best.
China’s Tsinghua officials had to have known that going in.
Further complicating the questions surrounding a possible Micron buyout is Tsinghua Unigroup’s existing relationships both with Hewlett-Packard (HPQ) and Intel (INTC). In May, it acquired a 51 percent stake in HP’s China networking business and last year, Intel bought a 20 percent stake in the company for some $1.5 billion.
The Tsinghua Micron chatter adds to the buzz already present on the rapidly consolidating semiconductor business. Earlier this year, Avago’s (AVGO) $37 billion acquisition of Broadcom (BRCM) constituted one of the largest technology mega-mergers on record, resulting in a combined company of some $15 billion in revenue and $77 billion in enterprise value. Soon after, Intel bought Altera (ALTR) for some $16.7 billion. December’s $1.6 billion merger of Cypress Semiconductor (CY) and Spansion (CODE) kicking off the recent run of activity.